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Alternative to paying big bonuses?
A Deloitte debate
In recent months there has been a lot of debate and controversy about bonuses in the financial services industry. But beneath all of the headlines is an even more fundamental question: do big bonuses actually work?
Do they drive tangible improvements in performance, and enable financial services firms to retain critical talent and motivate behavior that is good for the business? Or would firms be better served by other approaches to talent management and retention?
As financial services firms recover from the recent turmoil, they are likely to face an increase in voluntary turnover. During the financial crisis, the harsh reality of layoffs and the negative side of a rewards structure that was strongly tilted toward bonuses became very real for many in financial services. Loyalty and big bonuses have been pushed aside, changing, perhaps forever, the relationship between employers and employees. In addition, regulatory and market changes spurred by the crisis will require new operational and talent management strategies, which will include an increased focus on risk management, transparency, long-term performance, and accountability that will fundamentally alter the rewards structures of the past.
We don’t believe bonuses alone will be sufficient to address employee morale and talent gaps created by the financial crisis. Financial services leaders will likely need to better understand the talent requirements to deliver on their business strategies, and then find new ways to attract, retain, and grow people. A myopic focus on money and bonuses can often promote the wrong behaviour and create excessive churn across sectors.
Looking ahead, financial services firms may need a more balanced and comprehensive talent strategy that includes a variety of talent management and retention practices. Examples to consider:
Develop a people strategy. Different parts of the business have different needs and can benefit from different strategies. The same goes for different types of people. When it comes to managing and retaining talent, one size does not fit all. Develop a variety of customizable people strategies to increase success of attracting, retaining, and developing the right talent to drive the business.
Differentiate your recruiting message. Instead of focusing heavily on bonuses and compensation, emphasize softer benefits such as teamwork, independence, and work/life balance. Not everyone is only interested in making a quick euro!
Emphasize learning and growth. Offer people early exposure to senior executives and high profile assignments. Accelerated involvement and development is particularly appealing to Gen Y’ers and Millennials, who want the opportunity to make a fast impact.
Base part of the bonus on shared goals. Replace part of your individual bonus structure with a bonus based on shared goals. This can help promote teamwork and can help reduce the me-first mindset.
Establish multiple career paths. Instead of forcing everyone to put in extraordinary effort for extraordinary rewards, allow some people to choose an alternate path of reasonable effort for reasonable rewards – without dismissing them as slackers.
Bonuses clearly have a place in the financial services industry. But they aren’t the only way to attract, retain, and motivate talent. Financial services firms should carefully consider all of their strategic options and not resort to paying big bonuses just because they have always done so.